Jackson and Macon poised to lose their cash cow in wake of second-home real estate crash

When inflated real estate values in the second-home market came back down to earth, the touchdown wasnâ€™t gentle.

It was more of a crash-landing, and five years later two mountains counties are still sifting through the wreckage.

Plummeting real estate values in the second-home, resort communities of Cashiers and Highlands will soon bring a time of reckoning for Jackson and Macon counties.

The counties are in the process of squaring up the old real estate values on their property tax books with real estate values on the ground. And on the ground, property is selling for a lot less than what itâ€™s listed for on the countiesâ€™ tax rolls.

The property tax values on the books today date back to the good times of 2005, 2006 and 2007. Values have come down since then, and now Jackson and Macon counties must realign the values on their tax rolls with a dose of post-recession realism.

â€śPart of the revaluation process is to readjust all the prices based on what the market is doing,â€ť explained Kevin Ford, a real estate appraiser in Jackson and Macon counties.

Usually, property values increase year over year. Ford said this is the first time heâ€™s ever seen the needle move the other way.

The precipitous real estate drop is largely isolated to the second-home, retirement-home and vacation-home sector.

But that sector was like the Atlas for Jackson and Macon counties â€” it did the heavy lifting, shouldering a larger share of the property tax burden by virtue of their higher values.

Maconâ€™s tax revaluation will go into effect in 2015, and Jacksonâ€™s in 2016.

Both counties were slated to conduct the property value adjustments four years sooner, but they held off in hopes the real estate values would improve and the hit to the property tax rolls wouldnâ€™t be as dramatic.

â€śWeâ€™ve been putting this off, but thereâ€™s no more put off,â€ť said Richard Lightner, Macon County Tax Director. â€śThis is it.â€ť

The state requires that counties reassess property at least once every eight years, but counties may do it more often if they choose. Macon and Jackson had opted for a four-year schedule, which would have put their revals in 2011 and 2012, respectively, but both counties postponed their revals to the maximum of eight years.

The rebound they were hoping for by delaying hasnâ€™t materialized, however, and Jackson and Macon county leaders are now facing the hard truth: an increase in the property tax rate will be unavoidable.

Hiking the tax rate will offset the overall drop in property values.

Jackson and Macon counties have two of the lowest property tax rates in the state â€” 28 cents per $100 of property value. They largely owe that bragging right to the high-end homes and luxury lots in the Cashiers and Highlands area, which have propped up the property tax base.

But as those property values decline, their share of the property tax burden will decline as well. And average homeowners who have enjoyed a lower tax rate all these years thanks to wealthier homeowners picking up a bigger share of the tab will see their property taxes go up comparatively.

Real estate values have fallen 26 percent on average in Jackson County since the height of the real estate heyday in 2007.

Thatâ€™s a countywide average, however. Some property values have gone down even more. As a rule of thumb, property that saw the biggest inflation during the real estate boom will see the biggest deflation now that the boom has busted.

The values on luxury homes in Cashiers and Glenville have fallen by 30 percent or more. But the values on middle-class houses in Sylva and Cullowhee havenâ€™t fallen by much at all, only 10 percent or so.

â€śCertain areas of the county seem to be holding their value,â€ť said Kevin Ford, a real estate appraiser and analyst in Jackson and Macon counties.

Empty lots and raw land also saw a bigger decline than the average drop.

Ford is serving as a consultant for Jackson Countyâ€™s countywide property revaluation. Every home, lot and tract of land will be assigned a new property value in 2016 â€” which in turn determines how much someone pays in property taxes.

The new property values are supposed to be a better reflection of the current real estate market. Since real estate values fluctuate over time, these periodic assessments are supposed to square up the value listed on the countyâ€™s tax rolls with the actual value in the real estate market.

Ford presented an analysis of real estate sales to county commissioners last month, painting a picture of how much property values fell in different areas of the county.

The data was based on 556 real estate transactions countywide in 2013. Ford compared the selling price of each piece of property in the past year to the value listed on the countyâ€™s tax books.

The problem facing Jackson County commissioners is the hit to county coffers when the new property values take effect in 2016.

To counteract the decline in property values, the county will have to increase its tax rate come 2016, said County Manager Chuck Wooten.

How that translates for individual property owners is another story, however.

â€śNot everybodyâ€™s assessment is not going to go down,â€ť said County Commissioner Chairman Jack Debnam, a Realtor.

Whether someoneâ€™s taxes go up or down depends on how much their property value went up or down â€” compared to the overall â€śaverageâ€ť decline.

Commissioners decided to postpone the property revaluation twice over the past four years. The real estate doldrums of recent years meant not enough property was changing hands to accurately peg real estate values.

But the other hope was that by waiting, real estate values might start to rebound. And that would lessen the blow to the property tax rolls.

But real estate values havenâ€™t gotten better. In fact, theyâ€™ve continued to drop.

Thatâ€™s partly because some second-home owners have started to dump property simply to get it off their hands, and have done so at artificially low prices, which in turn can skew the numbers.

â€śPeople decide they want get rid of something. They donâ€™t want to pay the homeowners fees, they donâ€™t want to pay the maintenance and they donâ€™t want to pay the taxes anymore. They just want it gone,â€ť said Jackson Commissioner Chairman Jack Debnam, who is also a Realtor.

Out-of-state buyers who scooped up mountain vacation property during the height of the real estate market paid exorbitant prices that likely wonâ€™t return for years. Instead of hanging on to the property for the long-range rebound, theyâ€™ve decided to wash their hands of it.

Particularly if they bought it as an investment in the first place and now see no hope of flipping it. And if unloading it means taking a loss, so be it.

â€śWhen you start dealing in second-home markets, that money is expendable for those people that can operate in that type of environment,â€ť Debnam said.

A coastal comparison

A sister county on the coast could be a harbinger of whatâ€™s to come for Jackson on the eve of its revaluation, said County Manager Chuck Wooten.

Dare County, like Jackson, has a high-end second-home and vacation-home market. That county just completed its reval last year, and saw property values decline by 29 percent.

â€śDare County is very similar, it is just beach versus mountains,â€ť said Jackson County Manager Chuck Wooten.

Dare County, also like Jackson County, had a property tax rate of 28 cents. It increased the tax rate to 41 cents to make up for the hit to the property tax base.

â€śThat is exactly what will happen in Jackson County. It was a good indication to us what we were going to be looking at,â€ť Wooten said.

â€” By Becky Johnson

Jackson County real estate snapshot

On average, property in Jackson County is selling for 26 percent less than the value listed on county property tax rolls, according to an analysis of the 556 real estate transactions in 2013.

This list shows regional variation in property value declines, based on real estate sales in that area.

â€˘â€‚River: 45 percent decline, based on 13 sales

â€˘â€‚Scottâ€™s Creek: 33 percent decline, based on 43 sales

â€˘â€‚Glenville: 32 percent decline, based on 102 sales

â€˘â€‚Cashiers: 30 percent decline, based on 164 sales

â€˘â€‚Webster: 21 percent decline, based on 20 sales

â€˘â€‚Savannah: 15 percent decline, based on 15 sales

â€˘â€‚Sylva: 13 percent decline, based on 62 sales

â€˘â€‚Cullowhee: 8 percent decline, based on 33 sales

Time of reckoning nearly here in Macon reval

Property values in Macon County have fallen 25 percent on average over the past eight years.

Thatâ€™s the latest verdict, according to a countywide property appraisal now entering the homestretch in Macon County.

The revaluation set to take effect next year will assign new property values to every home, business, lot and tract of land in the county, adjusting the countyâ€™s property tax rolls to provide a more accurate reflection of todayâ€™s real estate values.

â€śThe county overall has lost 25 percent of its value,â€ť said Richard Lightner, director of the Macon Tax Department.

But the decline in real estate values varies by location and type of property.

Raw land and lots have seen a decline of 50 percent or more, Lightner said. And high-end, second homes in Highlands have also lost more. Meanwhile, the value of middle-class homes in Franklin may have held steady or even increased.

But the main take-away from Lightnerâ€™s presentation to county commissioners last month was the staggering net loss in real estate values.

The property value of every house, business, vacant lot and tract of land on the countyâ€™s tax books comes to about $9 billion today. But those values harkened back to the mid-2000s, when real estate was in its heyday.

When the revaluation comes online next year, the countyâ€™s property tax base will fall from $9 billion in total value to $7 billion, Lightner said.

The upshot? For the countyâ€™s budget to stay the same, the tax rate would have to jump from 28 cents to 38 cents.

Theoretically, the hike in the tax rate should be neutralized by the decline in property values on the other side of the equation, causing everyoneâ€™s tax bill to stay the same.

But thatâ€™s an idea based on the â€śaverageâ€ť property, and not every property owner is in an average situation.

Those whose property values held steady might rejoice at their good real estate fortunes, but they will feel the full brunt of the tax hike on their property tax bill.

Meanwhile, those who saw their property values plummet precipitously may lament their house isnâ€™t worth what they once thought, but the silver lining will be lower property tax bill.

â€śStatistically, a third will see a decrease, a third will stay where they were, and a third will get an increase,â€ť Lightner said.

The benchmark is that 25 percent â€śaverageâ€ť decline in values. If your property goes down by more than 25 percent, so will your taxes. If your property doesnâ€™t go down by 25 percent, your taxes will go up.

Property owners wondering where they fall on the spectrum will have to wait until November, at the earliest, which is when the new property values will be mailed out.

Appeals from property owners who disagree will play out over several months in the first half of 2015.

The even longer process, though, will be the recovery from the property bust of 2007. Real estate values are more in line with the early 2000s, before the big boom.

â€śFor the values to get back to 2007, we all agree itâ€™s five to 10 years minimum,â€ť Lightner said.

The biggest thing keeping real estate values depressed is the glut of lots on the market â€” a supply and demand issue. Until the huge inventory of residential lots gets cleared out, the prices will stay lower, Lightner said.

â€śWill we ever get caught up? Probably not no time soon,â€ť Lightner said.